MicroStrategy, known as the largest corporate holder of Bitcoin (BTC), has again expanded its holdings. As revealed yesterday, the company purchased approximately 16,130 BTC in November (worth roughly $608 million at the current market rates). The acquisitions were executed at an average price of about $36,785 per Bitcoin, bringing MicroStrategy’s total holdings to 174,530 BTC.

The software firm, led by Michael Saylor, also disclosed its plans to potentially raise $750 million through the offering of class A common stock. Partners in this venture include Cowen and Company, Canaccord Genuity, and BTIG. This announcement, however, has sparked speculations across various social media platforms, suggesting that MicroStrategy might be grappling with a “debt problem.”

Does MicroStrategy Have A “Debt Problem”?

Patrick Flood, a Chartered Financial Analyst (CFA) and investment expert at LATAM Stocks has delved into these rumors to dispel the growing fear, uncertainty, and doubt (FUD) surrounding MicroStrategy’s debt situation. In his detailed analysis posted on X, Flood provided insights into the company’s financial standing and future prospects.

Flood asserts, “I am seeing a lot of FUD about MicroStrategy debt. People are concerned that Michael Saylor keeps buying Bitcoin instead of dealing with their ‘Debt problem.’ I suspect these people haven’t read the MSTR financials… I did. And I don’t think they have a debt problem, at all.”

He further elaborated that MicroStrategy’s immediate financial obligations are not pressing, as the company is not required to repay anything until December 15, 2025. This gives MicroStrategy ample time to either roll the debt or issue shares for repayment. However, Flood suggests that repaying the 2025 note might be unnecessary.

Explaining the mechanics of the 2025 and 2027 convertible notes, Flood highlights the conditions under which debt holders can opt for conversion. If MicroStrategy’s stock trades at or above 130% of the 2025 conversion price for 20 out of 30 trading days, conversion becomes a viable and attractive option for debt holders, primarily due to the potential to sell the stock at a 30% premium over the conversion price. This premium far exceeds the 0.75% annual interest rate on the debt, making conversion a financially sound decision.

Flood calculates the critical price point for this conversion to be $517.39, based on a conversion price of $397.99 and a 130% premium. With the current stock price hovering around $498 and a 30-day moving average of $461, he suggests that reaching the necessary conversion threshold appears increasingly likely.

“The implications of the 2025 note converting are significant,” Flood states. “Firstly, MicroStrategy’s next debt repayment would then be pushed to February 15, 2027, over three years from now. Secondly, it would mean that the next $750 million Saylor plans to raise could be directly invested into Bitcoin, potentially before the Bitcoin halving in approximately April 2024.”

Reactions From The Bitcoin Community

The Bitcoin community has been vocal in their responses to MicroStrategy’s latest strategic maneuver. Broadly they have applauded Saylor. Erik Voorhees, CEO of ShapeShift, stated, “Within a couple years MicroStrategy will hold more Bitcoin than most sovereign nations can afford. What a chad.”

Preston Pysh, another well-known voice in the Bitcoin community, remarked, “Wake-up People! Michael Saylor is putting on a clinic for Wall Street dinosaurs.” Dylan LeClair also weighed in on the discussion, praising the playbook by Michael Saylor and MicroStrategy.

At press time, BTC traded at $38,343.

BTC price, 4-hour chart | Source: BTCUSD on TradingView.com

Featured image from iStock, chart from TradingView.com